The Future of Economic Integration within the Arab World

Abstract

I. INTRODUCTION Like many other topics concerning the Middle East, intraregional trade will be greatly affected by the massive inflows of capital into the oil-producing states during the coming years. The history of such trade has been examined in detail before.' The region has even embarked on ventures designed to promote the move- ment of goods within the area, such as the erstwhile Syrian-Lebanese Customs Union and the Economic Unity Agreement of I964, which envisaged the develop- ment of an Arab Common Market. We believe, however, that the momentous changes occurring at this time throughout the region require that questions regard- ing the likely future of any Middle Eastern economic union be reconsidered. Spe- cifically, we propose to examine the prospects of economic integration in the region from Libya to the Persian (or Arab) Gulf. We begin by presenting a profile of the region's trade-dollar volume, principal commodities, and changes during recent years up to the increase in oil prices; then we project the data forward to consider the possible benefits and drawbacks of integration for individual nations. The formation and functioning of a successful customs union or common market is clearly dependent on each member country reaping some benefit. The likelihood of the survival and development of the union would also increase if such benefits or gains were more or less equally shared by all the member nations.2 As a result, it is important to explore the possible benefits of an Arab customs union and evaluate the chances and problems of its success in relation to the present and future eco- nomic situations of each of the likely members. In the normal textbook analysis of a customs union, several effects are con- sidered. First, following the elimination of trade barriers between the members, there will be an increase in trade. This increase in consumer surplus and the pro-